Retailers seek fee rules for credit cards

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Retailers asked Congress yesterday to step in and control how much and in what way credit-card companies and issuing banks charge retailers for processing transactions.

Much of the heat was put on Visa and MasterCard, which collectively account for about 80 percent of all credit-card transactions in the United States. Representatives of both companies, testifying at a Senate Judiciary Commitee hearing, denied they are colluding to inflate fees and said debit cards and other new payment options force them to stay competitive.

Retailers want more regulation on interchange rates, the fee charged to retailers for processing a credit-card transaction.

Bill Douglass, vice chairman of government relations for the National Association of Convenience Stores, said interchange rates aren't always clear to retailers and are hurting gas stations as fuel costs climb and more consumers pay with plastic.

"As a retailer, I do not get a full disclosure of my rates," he said. "The rates can range from about 5 cents plus 1.15 percent [of the product cost] for each transaction to 10 cents plus 2.7 percent of the transaction."

Interchange works like this: When a customer buys a $100 product and charges it to a credit card, the retailer gets about $98. The remaining $2, called the merchant discount (but it's more of a fee), is broken down. About $1.75 goes to the bank that issued the credit card. Twenty-five cents goes to the retailer's bank.

Though a credit card may carry the name Visa or MasterCard, it is issued by a bank, such as Capital One or Chase.

In addition, the card company, such as Visa or MasterCard, bills the merchant each month for processing transactions. The fee comes out to about 5 cents per transaction, a Visa spokeswoman said. This breakdown, based on Visa's average 1.75 percent interchange rate, can vary.

Every retailer and type of transaction has its own agreement. Grocery stores, which were reluctant to accept credit cards until recently, were given a low merchant fee as an incentive to accept payment with plastic. Online retailers, which have few options besides accepting credit cards, have higher fees than the average brick-and-mortar retailer.

Retailers asked the committee to investigate whether the companies are colluding to set high rates.

Timothy J. Muris, counsel at O'Melveny & Meyers and former Federal Trade Commission chairman, said the credit-card companies are not violating antitrust laws.

"The merchants ... do not want an end to interchange," he said. "They simply want interchange rates to be lowered. But this is not an antitrust remedy."

Visa this week announced that it would make interchange rate factors available to participating retailers online, but only to those that sign a non-disclosure agreement. Committee Chairman Arlen Specter, Pennsylvania Republican, yesterday persuaded the Visa representative to make those rules available to the committee.

W. Stephen Cannon, representing the Merchants Payment Coalition Inc., a collection of retailers, called it a first step toward more transparent rules.

"We want the rules out in the open," he said. "This is an enormous first step."